Sunday, January 6, 2013

The state of the British economy and its post-Imperial future

As I wrote in an earlier post here, "The Future Of Britain" is written by its past. Any national economy has to have a valid and sustainable model to grow.

Britain had been struggling to adapt its economy in relation to the world and its own population since the end of the Second World War; by the end of the seventies, the new Conservative government followed the economic thinking of the Monetarist school. An inefficient manufacturing and public sector was seen to blame for many of the problems that existed; the private sector was seen as the most efficient sector, therefore this was promoted by the Thatcher government, while at the same time killing the power of the unions to control employees pay rights.
The Conservatives, due to their background, were naturally more minded to trust the opinion of The City, which up to this point had played a minor role in the British economy. Influenced by the Monetarist, laissez-faire approach, the complacent arrogance and ignorance of the Conservative government led them to believe that the British economy did not need a strongly-supported manufacturing base to the economy. In fact, many of them associated factories and manufacturing with backwardness, union militancy and inefficiency. It was the government's belief that an expansion of a booming financial sector was Britain's way forward in the post-modern age: with a strong financial sector, everything else would fall into place and grow along with it. It would be a sign of progress, therefore, that Britain would no longer need a real manufacturing base.

Up to the end of the seventies, Britain had a large manufacturing base that produced exports. Although it had its inefficiencies, the modest income of these industries was allowed to wither by the government and an ignorant private sector; rather than invest to regain their competitive edge, they were cut down, slice by slice, to maximise profits through minimising costs (i.e. laying-off the workforce and relocating premises). The manufacturing base became an early casualty to "globalisation", as companies moved their factories abroad. As was already said, the government turned a blind eye to this as it saw the financial sector as the future of Britain. The incoming Labour government in 1997 continued with this willful ignorance and complacency, continuing to massage the ego of the financial sector further. By the start of the 21st century, resting the hopes on the financial sector was the only hope to keep Britain's economy going, as there was very little else left to support it. Manufacturing was minimal, as "service industries" had replaced manufacturing. Even the agricultural sector had become unprofitable due to the lop-sided effect on the price of imports from the strong pound (courtesy of The City). All was good, as long as the economy kept booming.

The results of this thinking are clear to see now. Believing themselves to be infallible, the financial sector quickly began to forget the most basic rules of economics (let alone ethics) in order to make the most profit possible. The City and the government encouraged an expansion in credit lending, as well as making people see their own homes as an investment rather than a roof over their heads. By 2007, the whole system in Britain that was creating the financial-backed boom was shown to be the complete fraud that it had been all along. Ireland used an almost identical model, to the same sorry result.

This explains why Britain in 2013 has a completely dysfunctional and lop-sided economy, unsustainable in any real sense of the word. The best way to explain this, apart from in layman's terms, is to compare the British model to other economies and their models around the world.
In order for a nation to grow, it needs growth supported by exports. A few countries can get around this by being financial centres, such as Singapore, Hong Kong (although not technically an independent state) and Switzerland. This is the model that the British Conservatives aimed (and still aim) to imitate. But, by nature, such countries have a generally small, highly-skilled and educated workforce, which fits in well with the financial sector. Britain has none of these, except for London and the South-east (I'll come back to this point later in a moment).
For a country to have exports, there are generally two paths to success: either produce demanded products (such as Germany, the Far East and the USA); or have a demanded resource, such as oil (The Gulf States, Central Asia, the USA, Russia, etc.), precious metals (Africa, Mongolia etc.), coffee beans, whatever. Without either of these paths, the chances of economic growth are limited.

The Conservatives still believe that Britain can be ran like Singapore, but this thinking merely displays their blinkered London-centric mentality and economic ignorance of the rest of the country, never mind their complete ignorance of economics.

I said that only London and the South-east compare economically to places like Singapore; the rest of Britain in 2013 feels more like a neglected colonial appendage to a London city-state - the "Kaliningrad" of London, to use a Russian metaphor. Economically, there is London and the South-east; and then there is everywhere else. Greater London's economy is still flourishing based on the financial sector and related services. Meanwhile, the other regions of the UK are an a different economic country, dependent on the success of London somehow trickling through to them. If nothing changes, the future of Britain will be this: to be the "Empire Of London" in all but name; a wealthy London supporting its neglected and dysfunctional regional "colonies", made economic dependencies of the Imperial Capital.
Fifty years ago, the economy of the UK was far more balanced, as the manufacturing sectors of the North and the Midlands actually contributed much more to the economy. But no longer. Sold a lie by the government thirty years ago, it is Britain as a country overall that is suffering the results of that complacent idiocy.

Germany thrives still because its economy is balanced; its manufacturing sector was continually nurtured by government. Turkey is an up-and-coming power due to the investment thrown into its manufacturing; with a similar-sized population and dynamic approach like Germany, Turkey has a great opportunity to match Germany as a regional power in the medium and long-term.

Britain, sadly, has little future under the economic orthodoxy of its establishment. If you imagine rich Singapore controlling a economically run-down South-East Asia, you might be close to the truth to what future "Britain" as an economic power holds, as a wealthy and ignorant London establishment neglects the unfashionable and depressed corners of its "British Islands Empire".
And some of the establishment have the gall to question why rich London should support its poor regions.
Because you made them poor, that's why!

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